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Circuit City Domestic Store Sales Climb 7.1%

9/20/2005 09:23:00 AM Eastern

Richmond, Va. — Despite a fiscal second-quarter decrease in wireless and satellite television sales, Circuit City Stores posted a 7.1 percent increase in domestic segment sales, hitting $2.42 billion, up from a year-ago $2.26 billion. Domestic segment comp-store sales climbed 5.1 percent.

Consolidated Circuit City sales in the second three months, ended Aug. 31, jumped 7.8 percent, reaching $2.56 billion, up from $2.38 billion in the same period last year. Comp-store sales increased 5.3 percent.

The retailer, which recorded consolidated net earnings of $1.3 million, compared with an $11.9 million loss in the same period in 2004, returned to second-quarter profitability for the first time in five years. Net earnings from continuing operations totaled $1.3 million in the second three months, compared with a net loss from continuing operations of $11.4 million in the same three months a year ago.

However, the retailer’s consolidated gross profit margin came in at 23.9 percent in the second quarter, down from 24.9 percent the prior year. The domestic stores segment gross profit margin decreased nearly 1 percentage point in the second quarter, primarily reflecting declines in margin rates of PC hardware, projection television and DVD software. Also contributing to the drop in gross profit margin was the more aggressive implementation of competitive financing offers, compared with the same period in 2004.

Countering the margin slide, consolidated expenses dropped dramatically in the second quarter, down to 23.5 percent of total sales, from 25.2 percent year-on-year, reflecting a decrease in payroll and relocation expenses for the domestic segment, as well as the impact of the domestic segment’s sales increase.

“During the second quarter, we moved forward on a number of fronts,” said Alan McCollough, chairman/CEO. “We saw continued strong sales performance from our television category, which, as the center of home entertainment, is our most important business. We also saw strong sales performance in portable digital audio players and are pleased with the initial consumer response to our national roll out of PC services. Our Circuit City Direct business continues to experience strong sales.”

The domestic segment’s video category, which is the retailer’s largest, at 41 percent of total segment sales, for both this year and last, comp sales increased by double digits. Television comps climbed by double digits, led by triple-digit comp-store sales growth in flat-panel displays.

Growth in TV sales and double-digit comp-store sales growth in digital imaging were partially offset by double-digit comp-store sales declines in camcorders, DVD players and digital video services, said the chain.

In the domestic segment’s IT category, the percent of total sales dropped to 34 percent in the second quarter, down from 36 percent year-on-year. The category, which produced a single-digit comp-store sales decline in the three months, saw a single-digit comp-store sales drop in PC hardware, including double-digit comp-store sales declines in desktops, monitors and printers, which was partially offset by a single-digit comp-store sales increase in notebooks.

Comp-store sales for wireless declined by double digits in the second quarter, while sales from Circuit’s PC services offering, which rolled out nationwide during the three months, helped to offset the IT category’s comp-store sales dip.

The audio category, which accounted for 15 percent of total domestic sales in the second quarter, up from 12 percent the previous year, produced a double-digit comp-store sales increase in the three months. Triple-digit comp-store sales growth in portable digital audio products and single-digit comp-store sales growth in mobile audio products were partially offset by a double-digit comp-store sales decline in home audio products.

The domestic stores entertainment category recorded a single-digit comp-store sales decrease in the second quarter, with share if total sales dropping to 10 percent from 11 percent the previous year. This reflects a double-digit comp-store sales drop in music software and single-digit comp-store sales decrease in video software and game products, partially offset by a double-digit comp-store sales increase in PC software that was driven in part by the PC services offering.

Domestic segment extended warranty revenue in the second quarter rose to $97.4 million from a year-earlier $91.7 million, but the percent of total domestic sales for warranties slipped to 4 percent in the second quarter, down from 4.1 percent year-over-year.

For the six months, consolidated sales climbed 7.1 percent, reaching $4.8 billion, up from $4.5 billion year-on-year, while comps rose 2.7 percent. First-half net loss decreased to $11.8 million, down from a loss of $17.9 million in 2004.

Sales in the domestic segment for the six months rose 4.7 percent, hitting $4.5 billion, from $4.3 billion the previous year. Comps rose 2.8 percent.

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